AGNC Investment Corp.

AGNC Investment Corp. ("AGNC") operates as a leading provider of private capital to the U.S. housing market, primarily investing in Agency residential mortgage-backed securities ("Agency RMBS") on a leveraged basis ¹. These investments consist of residential mortgage pass-through securities and collateralized mortgage obligations, with principal and interest payments guaranteed by U.S. Government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, or by a U.S. Government agency such as Ginnie Mae ¹. The company's core objective is to generate favorable long-term stockholder returns with a substantial yield component, deriving income from the net interest earned on investments, after accounting for borrowing and hedging costs, and net realized gains and losses from investment and hedging activities ¹. AGNC funds its investments primarily through collateralized borrowings structured as repurchase agreements and operates to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code, requiring it to distribute annually 90% of its taxable income ¹.

AGNC employs an active management strategy, dynamically adjusting its portfolio composition, investment, funding, and hedging strategies in response to evolving market conditions ¹. The company's success is largely dependent on its ability to acquire assets at favorable spreads over borrowing costs ⁷. It competes for mortgage assets with a diverse group of investors, including other mortgage REITs, government entities, banks, specialty finance companies, public and private funds, and insurance companies ⁷. These competitors may possess advantages such as lower funding costs, access to different funding sources, or fewer regulatory constraints related to REIT status and the Investment Company Act ⁷.

The core business model revolves around investing in various mortgage-related securities and generating income from the interest earned, net of associated costs. The company's revenue is primarily generated from interest income on its investment portfolio, supplemented by net realized gains and losses on investment and hedging activities ¹. Funding is predominantly secured through short-term collateralized borrowings via repurchase agreements ¹. AGNC's customer segments are not explicitly defined as it primarily invests in the secondary mortgage market to enhance liquidity for the U.S. housing market ¹. The company also utilizes its wholly-owned captive broker-dealer subsidiary, Bethesda Securities, LLC ("BES"), which is a member of the Fixed Income Clearing Corporation ("FICC") and has direct access to bilateral and tri-party repo funding, including the General Collateral Finance ("GCF") Repo service offered by the FICC ¹. This provides greater depth and diversity of funding, lowers funding costs, reduces collateral requirements, and limits counterparty exposure ¹.

AGNC's investment portfolio is predominantly composed of Agency RMBS, which are considered a cornerstone of the U.S. financial system and play a vital role in providing liquidity to homeowners ¹. These include residential mortgage pass-through securities and collateralized mortgage obligations ¹. The company also invests in To-Be-Announced Forward Contracts ("TBAs"), which are forward contracts to purchase or sell Agency RMBS, and are recognized as derivative instruments ¹. Additionally, AGNC invests in Agency multifamily mortgage-backed securities ("Agency multifamily MBS") guaranteed by a GSE, and non-Agency securities such as Credit Risk Transfer ("CRT") securities, Non-Agency Residential Mortgage-Backed Securities ("Non-Agency RMBS"), and Commercial Mortgage-Backed Securities ("CMBS") ¹. As of December 31, 2025, the investment portfolio totaled $94.8 billion ⁴, an increase from $73.3 billion as of December 31, 2024 ⁴. This included $81.1 billion in Agency RMBS at fair value ⁴, $13.0 billion in net TBA securities at fair value ⁴, and $0.6 billion in CRT, non-Agency RMBS, and CMBS at fair value ⁴. Other mortgage credit investments accounted for under the equity method were $70 million ⁴. Fixed-rate Agency RMBS and TBA securities, particularly 30-year maturities, constituted 95% of the investment portfolio as of December 31, 2025 ⁴.

For the fiscal year ended December 31, 2025, AGNC reported total assets of $115,077 million ⁵, total liabilities of $102,684 million ⁵, and total stockholders' equity of $12,393 million ⁵. Net income for the year was $1,670 million ⁵, with net income available to common stockholders at $1,509 million ⁵. Basic earnings per share were $1.48 ⁵, and diluted earnings per share were $1.47 ⁵. Comprehensive income available to common stockholders was $1,777 million ⁵, resulting in diluted comprehensive income per common share of $1.74 ⁵. Interest income was $3,523 million ⁵, and interest expense was $2,848 million ⁵, leading to net interest income of $675 million ⁵. Operating expenses totaled $127 million ⁵. Repurchase agreements and other debt amounted to $85,342 million ⁵. Cash and cash equivalents were $450 million ⁵, and restricted cash was $1,292 million ⁵. Dividends declared per common share were $1.44 ⁵.

Comparing fiscal year 2025 to 2024, total assets increased from $88,015 million ⁵ to $115,077 million ⁵. Total liabilities rose from $78,253 million ⁵ to $102,684 million ⁵, and total stockholders' equity increased from $9,762 million ⁵ to $12,393 million ⁵. Net income grew from $863 million ⁵ to $1,670 million ⁵. Interest income increased from $2,949 million ⁵ to $3,523 million ⁵, while interest expense decreased from $2,931 million ⁵ to $2,848 million ⁵, leading to a significant improvement in net interest income from $18 million ⁵ to $675 million ⁵. Operating expenses increased from $110 million ⁵ to $127 million ⁵. The investment portfolio increased by $21.5 billion ⁴, with a $6.1 billion increase in the TBA position to $13.0 billion ⁴. The weighted average coupon of the portfolio, excluding TBAs, increased from 5.03% ⁴ to 5.19% ⁴. The portion of the fixed-rate investment portfolio with favorable prepayment attributes increased from 74% ⁴ to 76% ⁴. The average projected life Constant Prepayment Rate ("CPR") for the portfolio increased from 7.7% ⁴ to 9.6% ⁴. The hedge ratio decreased from 88% ⁴ to 77% ⁴.

During 2025, AGNC generated total comprehensive income of $1.74 per diluted common share ⁴ and an economic return of 22.7% on tangible common equity ⁴, which included $1.44 in dividends declared ⁴ and a $0.47 increase in tangible net book value per common share ⁴. The company increased its receiver swaption position by $6.9 billion ⁴ to provide additional protection in a declining rate environment. AGNC also issued $345 million of new preferred equity capital ⁴ and $2.0 billion of new common equity capital ⁴ during the year.

AGNC anticipates a favorable backdrop for mortgage spreads as it enters 2026, supported by the Administration's focus on housing affordability and maintaining mortgage market stability ⁴. The supply and demand outlook for Agency RMBS appears well balanced, with an expected net supply of new Agency RMBS in 2026 of approximately $200 billion ⁴. This, combined with an anticipated runoff of the Fed's Agency RMBS holdings of $200 billion ⁴, yields a total net supply of approximately $400 billion to be absorbed by the market in 2026, which is comparable to the prior two years ⁴. Demand for Agency RMBS is expected to remain robust, with GSE purchases potentially accounting for approximately half of the projected 2026 supply, and banks, money managers, foreign investors, and REITs expected to continue as active purchasers ⁴.

The company expects net spread and dollar roll income to benefit from several factors, including lower funding costs resulting from the September, October, and December 2025 rate cuts totaling 75 basis points ⁴. Potential future rate cuts and greater stability in funding markets are also expected to contribute positively ⁴. Additionally, a shift in AGNC's hedge mix toward a greater share of swap-based hedges in the fourth quarter of 2025 is anticipated to be beneficial ⁴.

Regarding operational outlook, AGNC's hedge ratio was 77% as of December 31, 2025, reflecting a shift toward a more accommodative monetary policy environment ⁴. This moderately reduced net spread and dollar roll income in the near term but positioned the company's earnings profile to benefit from rate cuts as they occur ⁴. The company increased its receiver swaption position by $6.9 billion during 2025 to provide additional protection in a declining rate environment ⁴. The duration gap, measuring the estimated difference between the interest rate sensitivity of assets and liabilities including hedges, extended slightly to 0.4 years as of year-end 2025, compared to 0.3 years as of December 31, 2024 ⁴.

For capital allocation, AGNC issued $345 million of new preferred equity capital ⁴ and $2.0 billion of new common equity capital ⁴ during 2025. As of December 31, 2025, $1.0 billion remained authorized to repurchase shares of common stock through December 31, 2026 ⁹. The company intends to pay monthly dividends to common stockholders in an amount that distributes all or substantially all of its taxable income to maintain its REIT status ⁵.

Structural headwinds and execution risks include higher hedging costs due to the maturity of legacy lower pay-rate swaps, as well as reduced mortgage spreads, which could offset some or all of the anticipated benefits ⁴. The company's ability to achieve its investment objectives depends on securing sufficient funding on favorable terms and continuously renewing or replacing maturing short-term borrowings ⁷. Factors such as disruptions in the repo market, higher short-term interest rates, declines in asset market value, increases in "haircut" requirements, and regulatory capital limitations on lenders could prevent AGNC from achieving its borrowing and leverage objectives ⁷.

AGNC is exposed to significant market risks, including interest rate, prepayment, extension, spread, liquidity, and credit risks ⁷. Spread risk is inherent as a levered investor in Agency RMBS, where widening spreads between asset yields and interest rate hedges can reduce tangible net book value ⁷. Interest rate and spread volatility can materially and adversely impact liquidity, increase costs, and impair risk management effectiveness, amplifying exposure to margin calls and potentially forcing asset sales under adverse conditions ⁷. The participation of the Federal Reserve and other government-related entities in the Agency mortgage market, including asset purchases or sales, can significantly affect mortgage market conditions, pricing, and returns, potentially impacting AGNC's tangible net book value and financial condition ⁷. Changes in prepayment rates, which are difficult to predict and influenced by various factors beyond interest rates, may adversely affect investment returns, requiring reinvestment at lower yields or financing investments for longer periods at higher costs ⁷. The analytical models and third-party data used for valuation and risk management may be incorrect, misleading, or incomplete, especially during volatile periods or with the evolving use of AI technologies, leading to faulty decisions and potential losses ⁷. The fair value of investments may not be readily determinable or realizable upon disposal, particularly in forced liquidations ⁷. Credit-oriented securities, such as CRT and non-Agency MBS, expose AGNC to potential losses from delinquency or foreclosure on underlying mortgage loans, and private mortgage insurance may not fully cover these losses ⁷. Geographic concentration of assets can heighten default and loss risk due to regional economic conditions or environmental hazards ⁷. AGNC's reliance on significant leverage, generally six to ten times tangible stockholders' equity, increases the risk of substantial losses, margin calls, and forced asset sales ⁷. The company may be unable to procure or renew funding on favorable terms, or at all, due to market disruptions, higher interest rates, declining collateral values, increased haircuts, or regulatory constraints on lenders ⁷. Borrowing costs may increase faster than asset yields, negatively impacting net interest margin ⁷. Changes to FICC margin requirements could limit access to tri-party repo funding and centrally-cleared TBA transactions, potentially leading to default and liquidation of collateral ⁷. Failure to comply with financial and non-financial covenants in funding and derivative agreements could result in defaults and the exercise of remedies by counterparties ⁷. The enforceability of repurchase and derivative agreements in bankruptcy or insolvency may be limited, and counterparties may not fulfill their obligations, leading to losses ⁷. Hedging strategies may be ineffective due to complexity, incomplete protection against all risks (especially spread risk), inaccurate risk assessment, or regulatory changes impacting derivative transactions ⁷. Operational risks include dependence on information systems and third-party service providers, where system failures or cybersecurity incidents could disrupt business, expose sensitive data, and incur fines or reputational damage ⁷. The use of AI by AGNC or its vendors could introduce additional risks related to data quality, model accuracy, bias, and cybersecurity ⁷. Failure to qualify as a REIT would result in substantial tax liabilities and reduced funds for investments and distributions ⁷. REIT distribution requirements may limit capital retention, potentially forcing unfavorable borrowing or asset sales ⁷. Distributions to tax-exempt investors may be classified as unrelated business taxable income under certain conditions ⁷. Legislative and regulatory changes, particularly regarding federal housing finance reform and the conservatorship of Fannie Mae and Freddie Mac, could adversely affect the Agency RMBS market, liquidity, and asset values ⁷. New regulatory requirements, such as revisions to bank capital rules or central clearing mandates for U.S. Treasury transactions, could impact financing availability, market liquidity, and demand for Agency RMBS ⁷. Loss of the Investment Company Act exemption would substantially reduce AGNC's ability to use leverage and conduct business as currently structured ⁷.

Management's message to shareholders emphasizes AGNC's strong performance in 2025, with Agency RMBS outperforming domestic fixed income alternatives, driving a best-in-class economic return of 22.7% on tangible common equity ⁴. This return was comprised of $1.44 in dividends declared ⁴ and a $0.47 increase in tangible net book value per common share ⁴. Management highlights the shift in monetary policy toward lower short-term interest rates and greater accommodation by the Federal Reserve, coupled with greater fiscal policy clarity and stable supply outlook for U.S. Treasury securities, as key factors contributing to reduced interest rate volatility and strong Agency RMBS performance ⁴. The Administration's focus on housing affordability and maintaining mortgage market stability provides a favorable backdrop for mortgage spreads in 2026 ⁴. Looking ahead, management expects net spread and dollar roll income to benefit from lower funding costs due to the 75 basis point rate cuts in September, October, and December 2025 ⁴, potential future rate cuts, greater stability in funding markets, and a strategic shift in the hedge mix toward a greater share of swap-based hedges in the fourth quarter of 2025 ⁴. However, management acknowledges that higher hedging costs from maturing legacy lower pay-rate swaps and potential reduced mortgage spreads in 2026 could offset some of these benefits ⁴. Strategic priorities include maintaining an active management strategy responsive to market conditions, optimizing risk-adjusted returns, and ensuring compliance with REIT and Investment Company Act exemption requirements ¹. The company also prioritizes human capital management, emphasizing a supportive and inclusive atmosphere, competitive compensation, and professional development for its 54 full-time employees ¹.